ATO Interpretative Decision
ATO ID 2001/540
Income Tax
CGT: Options: effect of expiryFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does CGT event C2 (in subsection 104-25(1) of the Income Tax Assessment Act 1997 (ITAA 1997)) happen when an exchange traded option expires?
Decision
Yes, CGT event C2 (in subsection 104-25(1) of the ITAA 1997) does happen when an exchange traded option expires.
Facts
The taxpayer purchased exchange traded options.
Some of the options expired and the taxpayer lost their money.
Reasons for Decision
An exchange traded option is a type of futures contract entered into on a futures market of a futures exchange, under which a party acquires an option or right which can be exercised at or before a specified time. An exchange traded option gives the party the right to either:
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- purchase from, or sell to, the other party a specified quantity of a commodity at a price specified in, or determined in accordance with, the contract; or
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- be paid by the other party an amount of money which reflects the amount by which a specified number is greater or less than the number of a specified index at the time the option or right is exercised. The index may be either the Australian Stock Exchanges All Ordinaries Price Index or a prescribed index.
CGT event C2 happens if an option ends because it is cancelled, or expires, or is abandoned, surrendered or forfeited (paragraphs 104-25(1)(a), (c) or (d) of the ITAA 1997).
If no amount is received for the expiry of the option, subparagraph 116-30(3)(a)(i) of the ITAA 1997 ensures that the taxpayer is not taken to have received market value capital proceeds.
When an option expires, the taxpayer will make a capital gain if any amount received for the expiry is more than the asset's cost base, and will make a capital loss if any amount received for the expiry is less than the asset's reduced cost base (subsection 104-25(3) of the ITAA 1997).
Note: Subdivision 130-B of the ITAA 1997 deals with rights and options issued to a taxpayer by a company or trust where the taxpayer did not pay or give anything to acquire them.
Date of decision: 15 August 2001Year of income: Year ended 30 June 2001
Legislative References:
Income Tax Assessment Act 1997
paragraphs 104-25(1)(a)
paragraphs 104-25(1)(c)
paragraphs 104-25(1)(d)
subsection 104-25(3)
paragraph 116-30(3)(a)(i)
Subdivision 130-B
subsection 134-1(4)
ATO ID 2001/539 ATO ID 2001/541
Keywords
Capital gains tax
Capital losses
CGT assets
CGT capital proceeds
CGT cost base
Futures markets
Securities rights & options
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 15 August 2001 | Original statement |
| 1 July 2005 | Archived |